Freelancing is a rewarding job, and it feels great to be your boss. You have the liberty to choose your work timings and schedule.
Although there are specific challenges of being a freelancer, there are more benefits of freelancing.
As a freelancer, you are solely responsible for your time and work. The only uncertain thing involved in freelancing is the amount that you earn.
Unlike full-time employees, freelancers also do not enjoy the benefits offered by the company to its full-time employees, such as tax benefits, insurance benefits etc.
Freelancers have to look into these matters on their own and bear their unforeseen expenses. Freelancers are not being paid on the same scale and lack in their pay grades. Also, there is no steady income and may face fluctuations in income.
Do not let these factors become a hurdle in your freelancing way. You can plan your benefits even with a freelancing job. You have to plan your cash flow properly.
Once you know the art of freelancing, it can be a rewarding job for you. If you plan smartly, you can enjoy all the benefits of a full-time employee.
Freelancing offers freedom being at work, and due to its flexibility, there is a growing trend of freelancing. You can choose your projects and the company as well.
Freelancer’s Guide to Financial Management
The most significant advantage of freelancing is that you work from the comfort of your home and do not have to step out. With the following techniques, you can empower yourself to manage your finances efficiently.
Separate your personal and business finances
The key is to keep your personal finances separate from your professional finances. This method helps you keep track of both the incomes. Also, it helps in the maintenance of your records cleanly.
Many freelancers do not pay tax the traditional way as most do not have a regular income. Therefore, it is crucial to managing your both accounts separately.
Distinguishing between both accounts is the first and the foremost step to maintain your records in a good state.
Set and follow that budget
Setting a budget is very important to manage your finances, and for freelancers, it is essential where there are inconsistencies in the income.
Without setting a budget, it becomes almost impossible to manage your finances.
No two-month incomes are the same for a freelancer. It becomes difficult to calculate an average income. In the case of budgeting, knowing your average income makes it more efficient.
Keep for yourself first
This advice is common to all who wish to manage their finances effectively. It is essential to pay yourself in the form of savings, but freelancers can face a challenge as there is no fixed income.
If you are into business, it’s your responsibility to pay your employees first and then cater to your personal expenses. But it is also important to cater to your expenses as it may lead to personal financial consequences.
One benefit of paying yourself first is that it will help reduce your stress and simplify your finances.
Maintain your emergency fund
With irregular income in freelancing, prioritize your emergency fund. Once you receive your income, it is your responsibility to keep aside a certain amount for your emergency fund.
As no two months, income is the same, so it may take a little longer time to get a substantial amount in your emergency fund. Ideally, your emergency fund should be sufficient to cater to your expenses for the next three months.
Hence, make it a priority and focus on your contingency fund.
Your emergency fund will help you cater to any emergency expense that pops up. It can be anything such as a sudden medical expense or a car repair.
Many expenses are unpredictable and have no indication before. So, it may be challenging to take out money from your regular monthly expense.
Save for Retirement
Retirement happens to everybody. People who plan their retirement do not face any financial issue compared to people who take their retirement planning casually.
Saving for retirement is an important decision in life. If you have saved sufficiently for your retirement, you do not have to seek support and financial help from anybody and can lead your life on your terms.
Pay off your debts without a break
You should pay off your debts without a break to maintain your credit score and be in a safer place financially. With a discrepancy in freelancer’s income, many of them do not pay their debts regularly.
Despite inconsistency in income, all freelancers should keep on paying their debts regularly. If they leave a one-month interest payment on to the next month and there is less income next month, the interest will keep on piling up, leading to a debt trap.
Many people take out very bad credit loans with no guarantor from a direct lender. These loans are flexible to pay back, but debt is a debt, and upon nonpayment, it may create financial pressure on you.
You can talk to your lender and decide on your repayment tenure and goals. Upon agreement, you can pay back at your convenience.
By making regular payments, you have a positive impact on your credit score. A good credit score will help you borrow money if you do not receive or receive the lesser amount as your income in any month.
Remember your taxes first
Taxes on freelancing income can be stressful and tedious. Freelancing income doesn’t have taxes deduction on them because of its irregular nature. Hence, to avoid the financial burden, keep aside some money for your taxes beforehand.
For your convenience, have two separate business savings account. One account is for your freelancing income, and the other one is for your estimated tax amount.
This will help you in avoiding confusion and also will prevent you from any sudden financial pressure.